What Is an Income Statement?
The statement that shows profit, with a simple worked layout.
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Quick answerAn income statement is a financial statement that reports a business’s revenue, expenses and profit or loss over a period, such as a year. It is also called the profit and loss account or statement of profit or loss.
| Time frame | A period (month, quarter or year) |
|---|---|
| Bottom line | Net profit or loss |
| Companion statement | Balance sheet |
Income statement in plain English
The income statement answers: “Did the business make money over this period?” It starts with revenue, takes away the cost of the goods sold and the running costs, and ends with profit. Unlike the balance sheet, which is a snapshot at one date, it covers a stretch of time.
Worked example
| Revenue | 80,000 |
| Less: cost of goods sold | (50,000) |
| Gross profit | 30,000 |
|---|---|
| Less: operating expenses | (18,000) |
| Operating profit | 12,000 |
| Less: interest | (2,000) |
| Less: tax | (1,500) |
| Net profit | 8,500 |
Common mistakes
- Putting the owner’s drawings or a company’s dividends in the income statement. They are not expenses.
- Treating profit as cash. Profit follows accrual accounting, so it can differ from cash flow.
Frequently asked questions
Is an income statement the same as a profit and loss account?
Yes. They are different names for the same statement.
What is the difference between an income statement and a balance sheet?
The income statement reports performance over a period. The balance sheet reports financial position at a single date.
What does a multi-step income statement show?
It shows subtotals such as gross profit and operating profit before arriving at net profit.
Keep learning
This page is for general learning. Accounting rules vary by country and standard.